Tech Today: STMicro’s Apple Biz, Tesla in China, Dumping eBay

Tesla China bound?

Shares of Tesla (TSLA) are up $6.70, or 2%, to $325.21, after Bloomberg’s Alex Webb this morning reported that the company is in preliminary talks to build a factory in Shanghai to produce more cars than it currently makes in the U.S., without citing any sources.

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Tesla’s Fremont, Calif., plant has so far this year made only 88,000 cars, notes Webb, but the plant in China would supposedly make as many as half a million per year.

The story came as Chief Executive Elon Musk is in China for meetings this week.

Today’s story is an update to a piece a year ago that said Tesla was looking to set up shop in Shanghai to defray the import duties on shipping cars to China. A piece yesterday by Bloomberg noted that the current tariff and trade battle between the U.S. and China means that prices for Tesla’s Model S and Model X cars have risen by as much as $30,000.

Apple’s Augmented Appeal

Shares of Apple (AAPL) are up 43 cents, to $191.01, after Merrill Lynch’s Wamsi Mohan this morning reiterated a Buy rating on the shares and raised his price target to $230 from $225, after concluding that products using “augmented reality” can add $1 billion in revenue per year for Apple starting in 2020.

According to a summary of the report, provided by TheFlyonTheWall, Mohan bases some of his analysis on his expectations for Apple’s “ARKit2,” a collection of software technologies that the company unveiled last month at its developer conference in San Jose that are designed to help developers build virtual reality applications.

STMicro’s Big Apple Payday?

Speaking of Apple, shares of chip giant STMicroelectronics (STM) are up 19 cents, or 0.8%, to $22.90, after Craig-Hallum’s Anthony Stoss this morning wrote that the company “may have won” business from Apple to put ST’s “eSIM” card into the upcoming iPhone models expected to be released this fall, based on his “checks."

ESim is a term for a kind of subscriber identity card that, rather than being a little piece of plastic that one puts in a slot in the side of the phone, it's a little chip soldered onto the circuit board of the phone. The eSim can be re-programmed over the air, presumably allowing for not only updates by carriers, but also the prospect of an individual switching carriers. The Apple Watch uses an eSIM.

"STM is already a supplier of eSIM and Apple is already using STM’s eSIM solution in the iWatch 3 cellular models,” notes Stoss.

STMicro’s chip for eSIM sells for "around $1.00,” writes Stoss, so an iPhone deal might produce "at least $80-$100 million in upside to estimates for 2H2018.” He also notes STMicro provides parts for “FaceID,” and given that it’s looking like Apple may proliferate Face ID across three new models of iPhone this fall, he expects that could also be upside for ST.

All totaled, it might bump up ST’s content per iPhone to $7 per unit from $6 last year, Stoss estimates.

Scotus Bad News for eBay

Shares of eBay (EBAY) are down 50 cents, or 1.3%, to $37.41, after SunTrust Robinson Humphrey’s Youssef Squali this morning cut his rating on the shares to Hold from Buy, and cut his price target to $40 from $48, after the U.S. Supreme Court last month ruled States can require collection of sales tax.

The "South Dakota vs. Wayfair Inc.” ruling, writes Squali, is going to bring headaches: “The new law […] has reclassified eBay as a ‘broker' and as such, requires that the company report all sales to the Internal Revenue Service.

"Logistically, we believe this is a daunting task for eBay as sellers would need to provide eBay with a social security or federal tax ID number, and report their profits to the IRS.

"This paperwork requirement is likely to add substantial friction into the system, potentially driving many sellers away from the eBay platform."

PayPal Better Than Square

Two new ratings this morning in the payments field, from John Hecht at Jefferies & Co., who takes over coverage of PayPal Holdings (PYPL) and Square (SQ), giving PayPal a Buy rating and a $98 price target, and giving Square a Hold rating and a $63 price target.

PayPal’s “opportunities abound,” he writes. In particular, he sees the potential for earnings to rise in 2020 with the Venmo person-to-person payments service. “For every 10% of existing Venmo user uptake (again, at four transactions per month),” it would add 2 percentage points to earnings in 2020, he muses.

He also likes PayPal’s “Consumer Choice” offering, predicting it will "have a materially positive impact on net new adds going forward and on product mix (ie, new Choice adds sign up for PayPal, rather than Braintree or Venmo)."

"Additionally, management indicated the product has resulted in fewer call center contacts. For these reasons, we believe Choice is a factor that should help offset ongoing mix-related contraction in transaction margin."

As for Square, Hecht thinks it has a "long runway of profitable growth,” but he’s not comfortable with the valuation of the stock.

"Our TEV/Adjusted Sales valuation for SQ is based on a 13x multiple applied to our projected CY2019 adjusted revenue of $1,968M and DCF,” he explains.

Despite many opportunities ahead for Square, "we believe that investors also need to balance this with considerations of risks – including heavy competition and high-growth targets in nascent business segments which requires strong execution."

PayPal stock today is up 6 cents to $86.30, while Square shares are down 42 cents, or 0.7%, to $66.06.

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